Estate planning can feel like learning a new language. This glossary of estate planning terms simplifies the most common concepts and tools. Understanding these terms helps you navigate your estate planning journey with confidence.
Estate Planning
The process of organizing your assets and creating instructions for how they distribute after you pass away. Estate planning includes both financial assets (bank accounts, investments) and non-financial assets (personal belongings, real estate).
Example: Creating a comprehensive plan that includes your home, cars, savings accounts, and instructions on who receives each asset.
Beneficiary
A beneficiary is a person or entity (like a charity) who receives assets from a will, trust, or insurance policy. You can name multiple beneficiaries and specify what each will receive. (Notes: Heir vs. beneficiary. The role of beneficiaries in estate planning and management.)
Example: If you leave a portion of your life insurance policy to your child, they are the beneficiary.
Durable Power of Attorney
This document lets you name someone to make financial or legal decisions on your behalf if you cannot. Unlike a regular power of attorney, it remains in effect if you become incapacitated.
Example: A durable power of attorney allows your spouse to manage your finances if you are hospitalized.
Executor
An executor is the person you choose to carry out the instructions in your will. They handle tasks like distributing assets, paying debts, and closing accounts.
Example: Naming a responsible executor ensures proper management of your estate.
Witnesses in trusts and wills validate proper execution of estate planning documents and confirm the sound mind and willingness of the person creating them.
Example: A witness provides an added layer of security for estate planning documents like wills or trusts.
Guardianship
Guardianship involves appointing someone to care for your minor children if you cannot. This can include decisions about their education, healthcare, and living arrangements.
Example: Parents often name a trusted family member as a guardian in their will.
Health Care Directive
Also called a living will, a health care directive outlines your medical preferences. It can include instructions for life support or specific treatments. You can create a healthcare proxy to name someone to make medical decisions on your behalf.
Example: A healthcare directive allows doctors to follow your wishes regarding critical care.
Heir
An heir is someone entitled by law to inherit assets from an estate if no will exists. Typically, this includes spouses, children, and other close relatives.
Example: If someone passes without a will, their heirs inherit based on state law.
Intestate
When someone passes intestate, it means they did not leave a valid will. In these cases, state laws decide how to divide their assets among heirs.
Example: Intestate laws often prioritize spouses and children for inheritance.
Revocable Trust
A revocable trust (or living trust or living revocable trust) allows you to make changes or cancel it during your lifetime. It’s a flexible option for managing assets and avoiding probate. Platforms like SimplyTrust make creating revocable trusts accessible and affordable for families who want to avoid the high costs and delays of probate.
Example: Many people choose revocable trusts to maintain control over their estate while planning for the future.
Irrevocable Trust
An irrevocable trust cannot be changed or canceled once established. It can offer significant tax benefits and asset protection.
Example: People often use irrevocable trusts to shield assets from creditors or reduce estate taxes.
Probate
Probate is the legal process of validating a will and ensuring payment of debts before asset distribution. It can take months or years and typically costs 3-7% of the estate’s value, depending on the estate’s complexity.
Example: A well-prepared estate plan minimizes the need for lengthy probate proceedings.
Testator
The testator is the person who creates a will. They decide how to distribute their assets and who will manage their estate.
Example: As the testator, you specify who inherits your property in your will.
Trust
A trust is a legal entity that holds assets on behalf of beneficiaries. A trustee manages it according to instructions in the trust document. Trusts come in a couple flavors: individual trusts and joint trusts.
Example: A trust can provide financial support for children or other dependents.
Trustee
A trustee is the person or institution responsible for managing a trust and ensuring its terms are followed.
Example: You can appoint a trusted family member or a professional as your trustee.
Will
A will is a legal document that outlines how you want to distribute your assets. It also allows you to name guardians for minor children. (Here’s a quick overview of wills.) You can create a last will and testament using free online tools.
Example: A will safeguards your wishes and reduces confusion for your family.
Estate
Your estate includes everything you own—property, bank accounts, investments, and personal belongings.
Example: An estate plan organizes the distribution of your estate.
Estate Tax
An estate tax (as opposed to an inheritance tax) is a tax on the total value of an estate before it passes to beneficiaries. It only applies to estates above a certain value—in 2024, the federal exemption is $13.61 million per person.
Example: Careful estate planning can help reduce or eliminate estate tax obligations for larger estates.
Understanding these estate planning terms helps demystify the process, making it easier to create a plan that protects your assets and your loved ones. For more comprehensive guidance, explore our estate planning guide or browse additional resources in our estate planning fundamentals section.